This invention relates to determining an opening price in an automated trading system for trading products such as equity securities.
In any trading system or market, there exists the possibility that at the opening of trading, the volume and prices of buy orders will not balance the volume and prices of sell orders. This could occur for many reasons or for no apparent reason. For example, events may trigger buying or selling pressure in a particular security or the market in general. Also simple fluctuations in supply/demand could produce an imbalance at the opening.
In an electronic market that uses a dealer model, a lock/cross condition can exist at the opening. In a locked situation, a market participant enters a quote or order having a bid price that is the same as the best, i.e., lowest displayed offer or enters an offer price that is the same as the best, i.e. highest displayed bid quote price. In a crossed situation, the quote or order bid price for the security is higher than, i.e., crosses the offer quoted price, or conversely the quote or order has an offer price that is lower than the currently best displayed bid price. Locked/crossed conditions are undesirable for maintaining orderly markets.